Mitigating risk is a key activity for any business – in fact some businesses actively welcome and balance risk as part of their strategy for success. But one significant risk that presents itself in various shapes and forms, to businesses of all sizes – is the risk of entering a legal dispute. Whether proceedings are presented by yourself, or brought against you by a third party, the consequences can be shocking and damaging for business.
Knowing that there is no way to eradicate the risk of dispute all together, we spoke to our commercial litigation team about the strategies business owners and managers can put in place to mitigate the consequences.
Identifying and understanding the risk
Every business is at risk of a dispute. Whether you are selling products or services – there is occasion for this to happen. Any agreement, verbal or otherwise, can end in a dispute and as your business grows in scale or complexity, the potential for this increases.
We also live in unprecedented times. There are economic difficulties affecting all industries – political upheaval, and an innovation race which is bringing new technologies like Web3 and AI to modern society. Why does this matter? Because with new tech, or innovation, new ways of working emerge, creating more scope for disagreement and dispute.
So, what are the consequences of a dispute arising? The largest, or certainly the ones which will hit businesses hardest, are the time and resources it takes to mediate or litigate a dispute. Your time, your team’s time, and the time of an appropriate legal team which in turn will incur a costly fee. Disputes aren’t often resolved quickly, and this cost of time and resource can be draining for any business.
To avoid this cost, many businesses will assess risk on a regular basis and larger entities may have a legal team that will advise on each and every relevant decision made. In both cases, having a process to identify and assess these risks is absolutely vital in trying to futureproof your business.
The use of contracts
Contracts are always put in place as a way to mitigate risk. They are an added level of security in that all parties understand their place, required contributions, and the consequences should they not meet those requirements. It is important to make sure that the terms of any contract are set out in writing at the outset when all parties agree. This means that, if there is a dispute later, where each party has a different idea of what the intentions were, there is a contract in which all of the agreed terms have been recorded that can be referred to.
Paul Edels, Head of Corporate and Commercial at Prosperity Law said:
“It is vital that the terms of any contract are recorded in a written agreement so that there can be no doubt as to what the parties have agreed to. A well drafted agreement will cover most of the bases and will provide for a number of scenarios, but there may sometimes be unforeseen circumstances that no one anticipated at the outset.
This is why it is important to have well drafted agreements, setting out all of the agreed terms, and providing for likely scenarios. If a dispute arises, the parties can look at the agreement and see how they originally agreed to proceed in such circumstances.
This does not mean that by having a written contract you can avoid a dispute in the future, but it does provide certainty about each party’s obligations and can often be relied on to determine who is in the right.”
Being proactive with your procedures
So, given that there’s no crystal ball in which you can identify the disputes that might arise in the future, how should you adapt your procedures in order to be prepared?
The big win here lies within a business’s approach to record keeping and internal systems (not exciting, but true). If a dispute is to arise, having recorded written communications that detail correspondence and (informal) agreements will be the first thing your solicitor will seek to gather. Therefore, ensuring that emails and correspondence, both recent and historic, are saved and archived (in a place where you can find them) is pivotal. Similarly with verbal communication – do you summarise key phone calls, or keep accurate notes of transactional meetings with suppliers and third parties? If the answer is no, that’s something you also might want to consider putting in place.
The unique perspective of a litigator
“Most people view litigators as someone who’s drawn in when trouble arises – and for the large part, they are absolutely correct. But in the case of dispute risk management, a litigator can actually provide proactive guidance, using the expertise derived from past cases.
Whether a business is in the early stages of a dispute or can foresee the risk of a dispute that can’t be managed by the terms of a contract – a commercial litigator can assist. There are various precedents and nuances that only a litigator will fully understand, and with their help you can build this knowledge into your existing business behaviours. By thinking ahead, you can protect yourself from the costs and distractions that are the inherent problems of any dispute.”If you’d like to speak to Prosperity Law’s Commercial Litigation team, email Andrew Farrell on andrewfarrell@prosperitylaw.com or give him a call on 0161 667 3686.
